PSEG Disputes New Estimate of Nuclear Profits, Awaits Answer on State Subsidies

Independent market monitor concludes that South Jersey plants, for which company is seeking $300 million in annual state aid, will net big profits over the next few years

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Coal and nuclear plants increased their profits last year, a finding in a new report that might undercut efforts to win subsidies for New Jersey’s three nuclear power plants.

In its annual State of the Market Report for the regional transmission organization PJM, the independent market monitor concluded that energy prices are not too low in the nation’s largest power grid, which includes New Jersey. Net revenues increased for all types of power plants, significantly so for coal and nuclear units, in 2018, according to the report.

The assessment differs sharply from what PSEG Nuclear has argued to legislators and state regulators in seeking up to $300 million in annual ratepayer subsidies to avert the closing of its three nuclear units in South Jersey. Without the subsidies, PSEG executives have said the plants will close, possibly beginning this fall with its Hope Creek unit.

The report, prepared by Joseph Bowring, the market monitor, used publicly available data, to assess the competitiveness of the energy market and to address, the economic viability of nuclear units within the PJM. Bowring also is an intervenor in the nuclear subsidy case before the New Jersey Board of Public Utilities.

Of 18 nuclear plants in the region only three are operating with shortfalls, and these are scheduled to close, according to the report. (Two of the three plants are in Ohio; the other is Three Mile Island in Pennsylvania.)

Proof the plants ‘do not need’ to be subsidized

On the other hand, PSEG’s plants would net a surplus over each of the next three years, ranging about $50 million annually for Hope Creek, and around $100 million a year for the two Salem units, according to the report.

“This is confirmation that the plants do not need to be subsidized,’’ said John Shelk, president and CEO of the Electric Power Supply Association, a trade group of power companies that has opposed the subsidies.

“The IMM has a long history of using publicly available data that does not accurately reflect our costs,’’ said Michael Jennings, a PSEG spokesman, adding the company has frequently corrected his data in previous proceedings. The report also ignores the costs associated with market and operational risks, Jennings said.

In any event, Jennings said the analysis is not relevant to the company’s applications for subsidies, dubbed zero emission certificates (ZECs). “We have provided the BPU with actual financial data from the plants that show the units are not financially viable and will close without material change,’’ he said.

A lot of information not public

Much of that data, however, is not publicly available. Extensive portions of briefs in the case have been redacted to protect proprietary information, only available to BPU staff, New Jersey’s Division of Rate Counsel, Bowring, and a consultant retained by the BPU.

“This is not a new story,’’ said Glen Thomas, of the PJM Providers Group, a coalition of power suppliers opposed to the subsidies.

“The market monitor has been consistently saying that these plants are profitable,’’ he said. “It’s fascinating they are considering pulling them out of the market if they are making money and do not receive the ZECs.’’

Doug O'Malley, director of Environment New Jersey, argued the report is important because the debate over the nuclear subsidies demands an independent voice. “The IMM report shows the Emperor has no clothes,'” he said.

Decision on subsidies expected next month

The improved outlook for the energy industry, rattled by sharply declining prices in recent years because of low natural-gas costs, was attributed to higher energy prices, fuel prices, and capacity (the cost of having reserve power to meet demand) prices, according to the report.

The report also downplayed the prospect of increased retirement of coal and nuclear plants. “The level of retirements does not pose a reliability issue in PJM and does not imply a fuel security issue,’’ according to the report.

The state is expected to make a decision on whether to give the nuclear units a subsidy by mid-April. However, that may not end the debate over the future of nuclear power in New Jersey, according to one analyst.

“Regardless of what happens over the next three years, there’s more to this issue over the long term,’’ said Paul Patterson, an energy analyst at Glenrock Associates. “You are looking at efforts to reduce energy consumption and increase the use of renewables by 50 percent in 10 years. You have to wonder what this means for nuclear power.’’

New Jersey’s ZEC program was enacted to preserve nuclear plants facing financial peril by recognizing their environmental attributes, according to Jennings. PSEG’s plants produce 40 percent of the state’s carbon-free power.